eBay Inc and PayPal Splitting Into Two Different Companies

eBay Inc (NASDAQ:EBAY) is a San Jose, California based multinational Internet consumer-to-consumer corporation, comprising of more than 128 million active users around the globe. It is one of the world’s biggest online marketplaces, where almost anyone can buy and sell practically anything via any connected device. With more than 500 million items listed on its website, eBay connects a varied community of individual buyers and sellers, as well as many small businesses.

It was announced on Tuesday, September 30th that Ebay will be splitting from its online payment service PayPal. In turn, PayPal will be spinning off into its own publicly traded company. Ebay CEO John Donahoe said in a statement, “A thorough strategic review with our board shows that keeping eBay and PayPal together beyond 2015 clearly becomes less advantageous to each business strategically and competitively.” He continued, “The industry landscape is changing, and each business faces different competitive opportunities and challenges.”

When the split takes place in 2015 Devin Wenig, the current head of Ebay marketplaces, will take over as Ebay’s CEO and the former American Express president, Dan Schulman, will take over as CEO of PayPal. Donahoe will step down as CEO of Ebay when the companies separate but will most likely hold a seat on both boards.

Shares of Ebay opened at $56.66 on Tuesday, September 30th. The e-commerce company has a 1-year high of $59.70 and a 1-year low of $48.06. The stock’s daily moving average is $56.63 and had a 50-day moving average of $53.51. The market cap for Ebay is $70.29 billion and its P/E ratio is not applicable.

On September 30th, Piper Jaffray analyst Gene Munster reiterated a Neutral rating on Ebay. He explained, “We also note that the separation of the two could create some additional potential opportunities/challenges. Specifically, by separating Marketplace and PayPal, it could make Marketplace more attractive as an acquisition, which is something that investors have been thinking about since Alibaba Group Holding Ltd (NYSE:BABA)’s IPO. On PayPal, investors will still contemplate the risk of PayPal directly competing with Apple Pay and Google Wallet, which will likely add some uncertainty to PayPal’s standalone valuation.” Munster currently has a 70% success rate recommending stocks, earning a +27.6% average return per recommendation. He has also rated eBay Inc (NASDAQ:EBAY) 15 times, earning a 64% success rate in recommending the stock.

Separately on September 30th, Keefe, Bruyette & Woods analyst Sanjay Sakhrani reiterated an Outperform rating on Ebay with a $65 price target. He noted, “We are not entirely surprised by the separation announcement given investor activism coupled with a challenging operating environment and heightened perceived competitive threats (e.g. Apple Pay). While there are clearly a number of unknowns related to the separation, we think an important component will be the standalone profitability of PayPal, excluding the investment initiatives being made within the payments segment to build on the company’s omni-channel strategy.” Sakhrani currently has a 65% success rate recommending stocks, earning an +8.2% average return per recommendation.

On average, the top analyst consensus for Ebay is Hold.

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